Appointment and Resignation of Directors in India

The appointment and resignation of directors are important processes that impact the overall functioning of a company. Directors are the strategic heads of the company who are responsible for guiding the company’s operations and decision-making. In India, these processes are governed by the Companies Act, 2013, which ensures that companies operate within a framework of corporate governance, compliance, and accountability. The law provides specific guidelines on who can be appointed as a director, the eligibility criteria, and the procedures for both appointing and resigning.

Types of Directors

Companies can appoint different types of directors based on the company’s structure and needs:

1. Managing Director (MD): The MD is fully responsible for managing the company’s day-to-day affairs and operations.
2. Executive Director (ED): An Executive Director is involved in the company’s daily operations and may hold specific portfolios, such as finance or operations.
3. Non-Executive Director (NED): NEDs do not engage in the daily management but provide strategic oversight and advice.
4. Independent Director: These directors are not involved in the day-to-day management but serve to ensure that the company adheres to governance practices. They are independent of the company’s operations and are expected to offer unbiased guidance.
5. Nominee Director: Appointed by shareholders or lenders, these directors represent the interests of a specific group, such as private equity investors or financial institutions.

Eligibility Criteria for Becoming a Director

There are no specific academic qualifications required to become a director of a company in India. However, certain conditions must be met:

1. Natural Person :- Only a natural person can be appointed as a director. This means that artificial persons, such as companies or associations, cannot be directors.
2. Indian Nationality Requirement :- The Companies Act, 2013 does not explicitly mandate that all directors be Indian citizens, but at least one Indian resident director must be on the board.
3. Limit on Directorships:- A person can hold directorships in a maximum of 20 companies, of which only 10 can be public companies.
4. Director Identification Number (DIN) :-Before being appointed as a director in a company, a person must obtain a Director Identification Number (DIN) from the Ministry of Corporate Affairs (MCA).

Disqualification of Director

Specific individuals are disqualified from becoming directors:

1. Unsound Mind or Insolvency: Individuals declared as mentally unsound by a court or those declared insolvent cannot serve as directors in a company
2. Criminal Convictions: A person who has been convicted and sentenced to imprisonment for more than six months is not eligible to become a director.
3. Non-filing of Returns: Individuals who have failed to file financial returns of previous companies they were associated with may not be eligible to become a director.
4. Bankruptcy: Individuals who have been declared bankrupt are not eligible to serve as directors.

Documents Required for Appointment

1. For Director Appointment:

• PAN Card of the director
• Proof of identity such as a Passport, Voter ID, Aadhar
• Proof of address such as Aadhar, Passport, Voter ID
• Recent Passport-Sized Photograph
• Director Identification Number (DIN)
• Digital Signature Certificate (DSC)
• Form DIR-2: Consent to act as a director

2.Documents Required for Director Resignation:

• Resignation Letter from the Director

Contact Sahyog Tax & Finance Advisory Ltd. to  assist to file DIR-3 KYC.